Contrary to Popular Belief, Increased Productivity Is a Good Thing for Manufacturers

Sep. 26, 2013

In today's hypercompetitive global economy, even the best manufacturers need to continuously boost productivity to survive. However, a growing number of pundits, activists and policymakers now argue that productivity causes job loss and therefore is bad for the economy.

They are wrong.

MIT professors Andrew McAfee and Erik Brynjolfsson have written one of the most prominent books making this claim, "Race Against The Machine." In it, they state that "it may seem paradoxical that faster progress can hurt wages and jobs for millions of people, but we argue that's what's been happening."

Other prominent academics have argued the same thing, including Paul Krugman, Richard Posner, and Brian Arthur. The popular press is also getting in on the bandwagon, with major features on CBS's "60 Minutes," as well as in the Associated Press, The New York Times, The Economist, The Atlantic and The Financial Times.

Before you throw your smartphone out the window, however, you should take some comfort in the following: There is no scholarly evidence that increasing productivity increases unemployment or lowers total employment growth in an economy, except possibly in the very short term.

In fact many studies find that rising productivity is almost always associated with lower unemployment.

Evidence from firms in a range of sectors likewise finds that while some firms shed jobs as they get more productive, a roughly equal number of firms actually add workers.

The problem with this article is how productivity is defined. It used to infer workers' productivity, but now with automation, fewer workers accomplish much more. If 10 robots can replace 100 workers, and one technician can service the 10 robots, then the economics is obvious, and doesn't require a college degree to understand it. Yes automation and sales to local markets can compete with slave labor in and transportation costs to other parts of the world, but it still disenfranchises the American worker, just as it did during the first industrial revolution, when farm equipment obviated the need for field workers. I am not arguing for the Luddites, but it's glaringly apparent how some means of economically enfranchising the population in the fruits of production must occur eventually, or fund more entitlements, or cull the herd.

Post your comments about this article or questions for the author here

Your review will be reviewed and appear online within one to two business days.

CAPTCHA Validation

Code:

Job Title:

Email:

Please add your email address if you would like to be entered in the prize giveaway!

Note that your Job title will be displayed with your review. Your email will NOT be displayed.